Before even thinking about forming a new company, you need to understand that entrepreneurship offers a lifestyle characterized by risk and reward on one hand. On the other...

Running a small business can be an appealing career option for independent individuals hungry for success – but entrepreneurship is not for everyone. Before you commit to the path of entrepreneurship, you should consider weighing the options between being a business owner and being an employee as the two paths could not be more different. Before even thinking about forming a new company, you need to understand that entrepreneurship offers a lifestyle characterized by risk and reward on one hand. On the other hand, being an employee promises a level of security, little risk as well as little reward.

Which path you decide on depends on your personality traits and your lifestyle expectations. The rest of this article will focus on highlighting the pros and cons of being an entrepreneur, in comparison to the pros and cons of being an employee.

Pros of being an employee

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Guaranteed Income

One of the most striking differences between entrepreneurs and employees is that employees receive a fixed, regular income monthly. As an employee, you know what you expect your income to be, and this can help you budget accordingly. This assurance of a regular wage and possibly additional allowances provides a level of financial security which you may not have as an entrepreneur. As an entrepreneur, you are the last to draw an income – an income which may vary depending on the performance of the business.

Leave Benefits

Employees are entitled to benefits such as annual leave, sick leave and even maternity and paternity leave for new parents. According to a scientific study, taking time off work results in higher productivity, stronger workplace morale, greater employee retention, and significant health benefits. Entrepreneurs, on the other hand, will not only lose revenue for sick days and vacation days but will also have to provide their own liability insurance and retirement savings plan.

Fixed Working Hours

As an employee, the average full-time job is made up of 40 working hours each week. Your defined hours are pre-negotiated with the organization and your average working day will see you go to work, do what you are paid to do for 8 hours and then you go home. You are not obligated to work extra hours but if you do, the company will usually have a payment allocation structure to compensate you for additional hours worked.

Work-Life Balance

When you clock out of work as an employee, you can go home and forget about work. Being able to dedicate a fixed amount of time to your working life can allow you to effectively compartmentalize your working and home lives. This is important because experts agree that compartmentalization helps you to reduce stress, concentrate better, and improve your work-life balance. Having a good work-life balance is crucial for helping you to meet your responsibilities in each area.

Specialized Responsibility

Most employees are only required to work in a designated area or field, with an aim to achieve designated results. You grow as an employee by mastering your designated task, the basis on which your performance is measured. You do not need to wear multiple hats or worry about performance in areas of the organization outside your designation.

Pros of being an entrepreneur

Freedom to Pursue Your Passion

Entrepreneurship is the career path which allows you to do your own thing and pursue those things that you feel most passionate about. The entrepreneurial lifestyle allows you to gain a deep sense of satisfaction and fulfillment from pursuing your chosen path in life in a way that is difficult to replicate as an employee.

Independence

Being an entrepreneur comes with independent decision-making abilities. You can tailor your working pattern according to your lifestyle, especially when standards, roles, and responsibilities have been implemented in your business.

Flexible Working Hours

As your own boss, you work when you want to work and stop working when you want to stop working. While you may need to put in more hours, you are no longer bound to the 9 – 5 cycle and you are free to personalize your own schedule. You can start your day early if you’re a morning person, or work later in the day if you prefer evenings. Self-employment means freedom from rules.

Uncapped Earnings

As an entrepreneur, your earning possibilities are endless. You are fully in charge, and the amount of money you bring in, as well as the rate of growth of your business, are all up to you. A singular action such as a change in your business strategy or the addition of a new product line could open the doors to unprecedented earnings that would have been otherwise unattainable as an employee. The sky really is the limit.

Scope to Explore

The entrepreneur usually has to simultaneously undertake a variety of roles – marketer, company strategist, HR, and even customer service. These roles come with the opportunity to gain knowledge and explore new situations. Tasks such as meeting other like-minded entrepreneurs, carrying out negotiations and facing challenging business scenarios help you see the bigger picture, and ultimately contribute towards your professional growth.

Cons of being an employee

Photo: Bruce Mars, Pexels/YFS Magazine

Lack of Control

Having to work under the directive of a boss with little or no opportunity to think and act independently on key decisions can be stifling. You might work hard towards gaining a promotion and in the end, the boss chooses to promote somebody else. While you might be able to control your job security to an extent, overall financial decisions are out of your control. The restriction on you as an employee also extends to working hours, where you are required to work the hours and times stated in your contract, rather than hours which are convenient for you.

Limited Income

Your annual income as an employee is pre-determined by the terms of your employment contract. You probably won’t earn much higher than this even in periods of peak performance – save for a few standard bonuses or incentives. To get any significant increases in pay, you would need to negotiate a pay increase or move to a different organization.

Personality Differences

You have no say as an employee over what sort of boss you might have to work for. You could end up with a hard-to-please, demanding boss to whom you have to show respect whether you like it or not. You might also even end up with fellow colleagues with a range of personalities which may or may not work in your favour, but whatever the case, you will need to be professional and focus on the task at hand.

Job Security

The competitive nature of today’s world means that employees need to work quite hard to retain their job security. As an employee, you will need to update your skills regularly, follow all the rules and regulations of the workplace and prove your worth – even at that, your job security is never guaranteed.

Cons of being an Entrepreneur

Stress

With great power comes great problems, and stress is probably one of the greatest downsides to entrepreneurship. You will encounter countless obstacles and challenges in your journey to profitability – keeping an eye on the competition, managing your internal processes and teams, while being relied on for key decisions that could affect your livelihood and that of your employees. No wonder 41% of entrepreneurs reported being stressed in a recent study.

Capital Investment

Capital is one of the main things an entrepreneur needs to keep the entrepreneurial dream alive but unfortunately, it is not that easy to come by. Many banks are reluctant to lend money to businesses they do not know, and you may find that you may have to provide a significant portion of the initial capital yourself. This can be a source of constant worry for the entrepreneur, unlike the employee who does not have to worry about raising capital for his or her daily job.

Long Working Hours

Until the business is successful, the entrepreneur has to take responsibility for business growth to the point of sustainability. Especially with a new business venture, you as the entrepreneur are mandated to put the hours in after employees have gone home, to ensure that the business remains profitable.

Financial Instability

Because the entrepreneur’s income is dependent on several variables, any fluctuations in demand or supply could deliver a direct negative hit to your wages. The fact that your outgoings – employee salaries, taxes, utility bills etc – are fixed, only deepens the financial uncertainty, and you may have to resort to dipping into your personal funds or savings to keep the doors open.

Risk

Entrepreneurs take risks on a daily basis – they take risks on strategic decisions, on hiring, on advertising and one wrong decision could put the entire business at risk of losing money invested. With a new business, the absence of an established customer base will only increase more uncertainty, as you will have to research and advertise to a defined target base which may be both enjoyable and complex – but will require time, energy and money.

In this article

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